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Sharia Compliance in Sharia Mutual Funds: A Qualitative Approach

Author

Listed:
  • Umi Widyastuti
  • Erie Febrian
  • Sutisna Sutisna
  • Tettet Fitrijanti

Abstract

Purpose: This study aims to describe the elements of Sharia compliance found in Sharia mutual funds, according to the fatwa of the National Sharia Board or Dewan Syariah Nasional (DSN) – the Indonesian Ulema Council or Majelis Ulama Indonesia (MUI) and some regulations which were issued by the Financial Services Authority or Otoritas Jasa Keuangan (OJK) in Indonesia. Design/Methodology/Approach: This study applied a qualitative approach using documentary and secondary data including fatwa and regulations which are needed to explore the Sharia compliance of Sharia mutual funds. This study highlighted and identified the elements of Sharia compliance using a hierarchy map. Findings: This study shows that Sharia mutual funds are Sharia compliant since they are obey Islamic principle including non-interest transaction, offering the halal product, no uncertainty (gharar) and no element of gambling. The OJK’s regulation and fatwa from the DSN–MUI emphasised other Islamic principles, including the prohibition of margin trading, short selling, and insider trading in Sharia mutual fund investments. They permit to payment of compensation (ujrah) for the service which are provided by the investment managers. Practical Implications: This study notes that economic activities (mu’amalah) should be conducted based on Islamic law. Due to the limited number of Islamic banks that being permitted to act as custodian banks in Indonesia, the mu’amalah of the Sharia mutual funds is conducted through conventional banks. This finding means the policymakers need to create more Islamic custodian banks for Sharia mutual fund investments. Originality/Value: The study has a contribution in identifying the elements of Sharia compliance in Sharia mutual funds in Indonesia.

Suggested Citation

  • Umi Widyastuti & Erie Febrian & Sutisna Sutisna & Tettet Fitrijanti, 2020. "Sharia Compliance in Sharia Mutual Funds: A Qualitative Approach," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 19-27.
    • Handle: RePEc:ers:ijebaa:v:viii:y:2020:i:3:p:19-27
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    References listed on IDEAS

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    1. Jaballah, Jamil & Peillex, Jonathan & Weill, Laurent, 2018. "Is Being Sharia compliant worth it?," Economic Modelling, Elsevier, vol. 72(C), pages 353-362.
    2. Hafezali Iqbal Hussain & Mohd Farid Shamsudin & Shahrullizuannizam Salehuddin & Noor H. Jabarullah, 2018. "Debt Maturity and Shari'ah Compliance: Evidence from Malaysian Panel Data," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 176-186.
    3. Bambang Bernanthos, 2018. "Employees' Performance in Islamic Banking," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 31-42.
    4. Umi Widyastuti & Erie Febrian & Sutisna & Tettet Fitrijanti, 2019. "Factors Explaining the Market Discipline of Sharia Mutual Funds from a Behavioural Finance Perspective: A Theoretical Approach," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 198-212.
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    Cited by:

    1. Mery Maulin & Mohamad Anton Athoillah & Deden Effendi & Cosvi Hardinata, 2021. "Civil law notaries according to Sharia compliance in property financing contracts," Technium Social Sciences Journal, Technium Science, vol. 20(1), pages 441-451, June.
    2. repec:thr:techub:10020:y:2021:i:1:p:441-451 is not listed on IDEAS

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    More about this item

    Keywords

    Sharia compliance; Sharia mutual funds; Islamic principles.;
    All these keywords.

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • K19 - Law and Economics - - Basic Areas of Law - - - Other
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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